July 14, 2024

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How markets react to central bank decisions

How markets react to central bank decisions

The day is dominated by her decision Nourish it to US interest rates. The opening of interest rates on both sides of the Atlantic caused the value of the dollar to strengthen against the euro and other European currencies, which gave importers of European goods an advantage in the American economy.

However, the main issue for Markets They are not Export performance But whether the latest macro data are able to launch the case for cutting US interest rates in the next session or the next day remains to be seen following recent moves by the European Central Bank and the Bank of Great Britain.

In reality, markets do not focus much on the decision itself but use information from central banks almost on a daily basis.

Expressing the Fed’s policy actions Three main influential categories:

  • Traditional advertisements (traditional advertisements): Standard advertisements for the interest rate of an effective intervention.
  • Forward Guidance: What the Fed expects future interest rates to be.
  • Quantitative Easing (Large Scale Asset Purchases – LSAP): What is the normal volume of bond purchases from the secondary market.
  • Information and Statements of Officials (CBI Information): Interviews, minutes and public speeches of central bank officials.

I recently posted a related one Stady Effects on the above-mentioned category triggers prepared by ECB executives and so on. Giorgos Georgiadis and Marek Jarosinski. The two ECB executives looked at how stock, bond and currency markets react each time and categorized their observations in a graph on a percentage scale.

What may be surprising is that unconventional monetary policy measures elicit the same, if not greater, market reactions than the conventional reactions of raising and lowering interest rates. In fact, unconventional measures in bond markets elicit greater reactions than conventional ones. Only in stock markets does a lower or higher interest rate seem more influential than the potential for widespread buying or selling of bonds.

In plain Greek, bond markets appear to react more strongly to announcements about future expectations and the size of quantitative easing than to planned announcements about the price of the Fed’s intervention. And the effects still seem to last directly Across a group of securities traded in the markets, it has a direct impact on risk appetite by changing the relative risk premium.

These moves activate different levels of equilibrium in bond markets (mainly developed countries) giving in the medium term some yield premium depending on the decision. Finally, the intensity of volatility turns out to be more pronounced in the United States than in other advanced economies in the vast majority of securities.

Average daily changes in Fed movements or data

Forecasts (Future Guidance – FG), Quantitative Easing (Large-Scale Asset Purchases – LSAP), Information and Statements of Officials (CBI) – Advanced Economies: Developed Economies

So, for today’s Fed meeting, markets will mainly focus on future guidance and any changes to the ongoing quantitative easing program. If the Fed remains more hawkish than the ECB, the immediate impact will be felt through outflows from bond and equity portfolios lasting several months, not just a few weeks.

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